Tune Protect’s saw a weaker 3Q18 net profit, of which was down 28.3% yoy and 28.7% qoq. As a result, 9M18 net profit saw a marginal growth of 2.2% yoy to RM38.5m, coming in below our and street estimates. Given a lower underwriting profit (lower net claims and lower net commissions offset by higher management expenses) of 9M18, its pretax-profit of RM45.5m (+3.3% yoy) was sustained by investment income and gains. Tune’s outlook remains favourable, supported by strategic initiatives such as the Dynamic Pricing 2.0, a new digital platform and partnership with an Insurtech firm. Maintain BUY, Price Target revised down to RM1.05 (based on a 1.3x P/BV multiple on CY19E EPS).

A Weaker 3Q18 Due to Higher Management Expenses

Tune Protect’s saw a marginal expansion in 9M18 earnings, which grew by 2.2% yoy to RM38.5m arising from a weaker 3Q18 performance. The 9M18 results accounted for 83% of our and street estimates as management expenses continued to creep up due to higher salaries, provision for receivables and administrative costs, which had also caused 9M18 underwriting profit to dip 2.3% yoy. On a more positive note, we saw overall 9M18 net claims coming in lower by 23.4% yoy (also led by favourable claims experience in 3Q18, as reflected by a claims ratio of 32% vs. 40.7% in 3Q17 and 36.2% for 9M18 vs. 43.2% in 9M17). At the topline, 9M18 gross written premium (GWP) grew by 4.0% yoy, underpinned mainly by a +6.1% yoy growth in Digital Global Travel’s GWP (policies issued to major airline partners +52% yoy) while the general insurance GWP was up 2.9% yoy.

Revising FY18E/19E/20E Earnings by -18%/-7.9%/-3.0%

Due to the additional management expenses incurred in 3Q18, we factor in these additional costs into our FY18E-20E earnings, resulting in a revision of -18%/-7.9%/-3.0%. We remain upbeat on Tune’s FY18-20E earnings outlook, driven by its roll-out of growth initiatives through new partnerships with airlines/car dealers, P2P Insurtech’s digital-driven platforms and products.

Reiterate BUY With a Revised PT of RM1.05 From RM1.20

Reiterate BUY. We believe that earnings downside risks remain low given Tune’s promising expansion endeavours. We revise our Price Target from RM1.20 (P/BV target of 1.45x CY19E) to RM1.05 (P/BV target of 1.3x CY19E BVPS). Key downside risks include a sustained decline in its travel insurance segment, price competition, and spike in claims.

Source: Affin Hwang Research - 16 Nov 2018